VZCZCXYZ0009
PP RUEHWEB

DE RUEHPE #0041 0081705
ZNR UUUUU ZZH
P 081705Z JAN 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC PRIORITY 3535
INFO RUEHBO/AMEMBASSY BOGOTA 4235
RUEHBR/AMEMBASSY BRASILIA 7154
RUEHBU/AMEMBASSY BUENOS AIRES 2726
RUEHCV/AMEMBASSY CARACAS 0054
RUEHLP/AMEMBASSY LA PAZ JAN QUITO 0918
RUEHSG/AMEMBASSY SANTIAGO 1028
RUEHGV/USMISSION GENEVA 0476
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASH DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS LIMA 000041 
 
SIPDIS 
 
SIPDIS 
 
USTR FOR EEISSENSTAT, BHARMAN AND MCARRILLO 
GENEVA FOR USTR 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EFIN EAGR ENRG PE
SUBJECT: PERU ELIMINATES TARIFFS ON 2,894 ITEMS 
 
¶1. (U) SUMMARY:  On December 27, the Council of Ministers 
unilaterally eliminated the tariffs on 2,894 product 
subcategories, most of which are capital goods.  President 
Garcia announced the measure as part of his government's 
"investment shock" program, saying the tariff reductions 
would:  help 50,000 companies (mainly microindustry) purchase 
needed machinery, increase production, improve tax 
collection, generate employment, and immediately help 
consumers through lower prices.  These tariff reductions will 
benefit U.S. companies, particularly those involved in the 
agricultural, information technology and energy sectors.  The 
new tariff rates took effect January 1, bringing Peru's 
average tariff down from 10.1 to 8.3 percent, and will cost 
the GOP an estimated USD 259 million in tariff revenue.  End 
Summary. 
 
¶2. (U) The full list of product subcategories whose tariffs 
were reduced from either 4 percent or 12 percent to zero was 
published in El Peruano (Peru's Federal Register) on December 
¶28.  The items include machinery, equipment and animals used 
in the agricultural, medical, textile, construction, and 
transportation industries, as well as information technology 
items, gasoline originating outside the Andean Community, 
some agricultural inputs (such as soy products) and 
water-borne vessels (including yachts, sailboats and canoes). 
 
¶3. (U) This unilateral tariff reduction was suggested by 
Minister of Economy and Finance Luis Carranza.  Carranza 
explained that the measure would help fuel private industry 
and bring private investment to 25 percent of GDP, which is 
necessary to maintain the GOP's target annual GDP growth rate 
of 6-7 percent.  As for the USD 259 million cost, Carranza 
said this would be offset by increased production and would 
have minimal budgetary impact as the 2007 budget foresaw 
reduced tariff revenue due to the expected entry into force 
of the U.S.-Peru Trade Promotion Agreement (PTPA) in January 
¶2007.  (Note: the PTPA has not yet been approved by the U.S. 
Congress and implementation is months away at best.  End 
Note.) 
 
¶4. (U) Not surprisingly, the principal opposition to these 
tariff reductions has come from Peruvian producers of the 
affected items.  As Minister of Production Rafael Rey noted, 
"the reduction is across the board, with no differentiation 
for items produced locally, but eliminating protection 
increases competition, leads to better products and benefits 
Peruvians." 
 
¶5. (U) COMMENT: Peru's excellent macroeconomic situation 
makes this tariff reduction relatively easy to swallow.  In 
addition to five years of greater than five percent annual 
GDP growth, Peru had a 1.6 percent budget surplus and less 
than two percent inflation in 2006.  This tariff cut and 
resulting reduction in production costs are also an effort by 
the GOP to slow the growth of foreign reserves (currently 
about USD 17 billion) and decrease upward pressure on the 
Peruvian currency, which is currently at its highest value in 
eight years.  These tariff reductions will benefit U.S. 
investors in Peru and U.S. companies exporting to Peru, 
particularly those involved in the agricultural, information 
technology and energy sectors.  End Comment. 
POWERS